Keep good records and stay on top of terminology: lessons from the Santos ruling
The Federal Court of Australia has just explained why it sided with Santos in a major greenwashing case that centred on the firm’s net-zero pledges.
The Australasian Centre for Corporate Responsibility (ACCR) had accused the Oil & Gas company of misleading and deceptive practices in relation to its climate statements and transition plan.
Specifically, it said that Santos misled consumers by describing its use of gas – including in hydrogen production – as “clean”.
ACCR also argued that the firm’s claims of a “credible” and “clear” plan to achieve net zero by 2040 were based on flawed modelling, and relied on undisclosed assumptions about the effectiveness of carbon capture and storage.
It’s thought to be Australia’s first judicial ruling on the credibility of net-zero plans, but there have been similar cases elsewhere – including in Germany, where online retailer Shein recently agreed to stop talking about its net-zero commitments after a legal challenge.
The case against Santos was dismissed on February 17th, with 150 pages of legal reasoning published on Monday.
It’s an important result, but one lawyer Paul Schoff says “should not be misread as judicial scepticism about greenwashing enforcement”.
“The Court conducted a detailed, technically sophisticated examination of the company’s claims,” says the ESG specialist for MinterEllison.
“Santos prevailed because it had the documentation, the expert evidence, and the internal process to demonstrate reasonable grounds for its statements – not because the Court concluded that climate claims are inherently difficult to challenge.”
So what was assessed?
The judge deemed Santos’ statements, which were made in annual reports and investor presentations through 2020 and 2021, to be about the future.
“In so doing, the Court drew a line between statements that merely assert that a target exists, and statements conveying expected future outcomes,” Schoff tells Real Economy Progress.
That decision shifted the burden of proof onto Santos, and it had to demonstrate it had reasonable grounds for making the statements.
One of the central arguments was about whether Santos had fairly explained the commitment’s reliance on carbon offsets, and emerging technologies like blue hydrogen and carbon capture and storage.
“These are areas where independent expert validation and clear disclosure of assumptions are essential,” says Schoff.
He adds that, in fast-moving technological areas, “terminology defensibility is time-stamped” – meaning that companies must be on top of how standards and language is evolving, and update their statements accordingly.
Ultimately, the Court decided Santos was sufficiently transparent about its dependence on offsets and the uncertainties involved in fulfilling its stated ambitions.
Its reliance on new markets and policies was deemed acceptable because that was the general direction of travel at the time, and it was reasonable to expect investors to know that success wasn’t guaranteed.
“Companies are not required to achieve certainty in long-term climate projections, but they are required to identify, document and disclose the key assumptions underpinning their claims, and to demonstrate that those assumptions were reasonable when made,” says Schoff.
Lessons learnt
The findings are especially noteworthy because mandatory sustainability reporting is currently being phased-in in Australia, including requirements to explain forward-looking risks and plans.
Schoff says the Santos ruling highlights the importance of internal due diligence.
“If a reasonable process is implemented by well-qualified, informed people doing their best, the Court will generally need ‘something’ in the evidence before concluding the resulting statements lacked reasonable grounds – so process is very relevant, even if not determinative,” he tells Real Economy Progress.
He adds that this is a “nuanced but important finding”.
“A rigorous internal governance process around climate disclosures is not a complete defence, but it was clearly a highly relevant factor in the court’s assessment of ‘reasonable grounds’.”
In practice, it means companies “should build a contemporaneous audit file for material forward-looking climate statements”, including supporting evidence, underlying assumptions, data sources and expert sign-off.
This shouldn’t happen reactively, Schoff says.
“The documents created at the time of publication are the documents you rely upon in court years later.”